Closer Look: Micron/Hynix deal leaves unanswered questions

The takeover of Hynix Semiconductor's DRAM fabs by Micron Technology may not bring the kind of stability in that market that many are counting on.

The takeover of Hynix Semiconductor's DRAM fabs by Micron Technology may not bring the kind of stability in that market that many are counting on.

If Samsung Electronics and Infineon Technologies separately ramp up production as they seem hell bent to do, then DRAM overcapacity is still a real possibility. And Hynix' extra production could end up giving Micron more headaches. Since the aging Hynix fabs initially are far less cost-efficient, the added economies of scale could be a negative factor.

Once Micron gets its hands on the Hynix fabs, whenever that is, look for nine months to a year before the fabs are upgraded to Micron's state-of-the-art processes. That's when the additional Hynix fabs begin to make a major contribution to Micron, instead of being a drag.

You shouldn't count on Hynix' current 16% global market share by revenue to be totally added to Micron's 20% share (the estimates are from Sherry Garber, vice president of Semicon Research Inc.). Garber said there could be some loss to Hynix' market share in the transition, as some customers are lost to other vendors. If Micron must shut down any fabs temporarily in the upgrading, then that production is lost to the combined market share.

On the other hand, some wavering Hynix customers might be motivated to go with Micron Korea, as the new entity is slated to be named, as a dependable supplier at last after all the embattled financial gyrations of Hynix in the last year.

A lot also depends on how the agitated and aggressive Hynix labor unions work with Micron in any fab takeover. Hyundai Electronics (the former name of Hynix) had its hands full trying to amalgamate the former LG Semicon fabs it took over in the shotgun marriage three years ago. And these were two Korean companies, not a foreign intruder.

Micron got a taste of foreign labor trouble at its Avezano, Italy, fab a year ago when workers threatened to strike over nothing more substantial than changed working hours. The Korean unions could give the U.S. chip maker a post graduate course in international labor relations.

Any acquisition of Hynix DRAM fabs does make one substantial market change. It would get rid of a wild card global vendor who, rightly or wrongly, was blamed for a variety of cut-throat DRAM pricing swings in the last six months. It achieves Micron Chairman Steve Appleton's self-stated objective: eliminate a major competitor in the market.

Theoretically the DRAM consolidation into two major contenders -- Micron and Samsung (the next nearest rival is Infineon with only an 11% share now) -- should stabilize the market. But as Dan Scovel, chip analyst with Needham & Co., pointed out, "Only two major competitors in the microprocessor market hasn't stopped Intel and AMD from trying to cut each other's throats in pricing wars."

If the lesser DRAM players try to boost market share by outsourcing a big portion of production to Taiwan foundries, they could keep plenty of pressure on market pricing.

So there you have it: even with the pending Micron deal to take over Hynix's DRAM business, the global market is still as confused as ever. But that's not a bad thing for OEM and supply channel customers, who have benefited immensely from the last 18 months of DRAM chaos.